While every sector of the market is different, some sectors offer investors a chance for solid returns with low risk. That typically includes heavily regulated sectors like telecoms and utilities.
But the airline industry is in a sweet spot with just the right amount of favorable regulation, combined with a sector that’s determined to build profit margins, not market share.
For decades, the airlines were a terrible investment. With fare wars, the competition to increase market share, and so on, the big carriers racked up all sorts of debt, only to go into bankruptcy when the economy or travel slowed.
Now, after consolidating to the point where the largest four carriers have two-thirds of the market, there’s a healthy oligopoly. No one company can come to dominate, and if any try, they’ll likely end up taking a financial beating.
Meanwhile, the United States prevents foreign carriers from operating domestic flights. So the few carriers that do serve passengers today don’t have to worry about foreign competition.
Add in low oil prices right now, which impacts the big cost of fuel costs for airlines, and you have a sector that looks very attractive for investors.
How should you buy? For most folks, that depends on where you live, because different airlines serve different routes.
This sector is now a classic example of buying into a company whose product you use. It’s not going away, and as the airlines are more interested on figuring out new fees to get more revenue from passengers, they’ll likely continue to fare well in any economic environment.
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